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Mortgage Insurance Premiums(MIP) Rising April 2011

FHA MIP Rates to Increase

If you’re a buyer currently shopping for a new home and putting less than 20% down, something to take into consideration since it can significantly effect your monthly mortgage payment amount- is the recent news of increasing Mortgage Insurance Premium rates.

For the third time in 12 months, the FHA is changing its mortgage insurance costs. Effective for all FHA case numbers assigned on, or after, April 18, 2011, annual mortgage insurance premiums (MIP) will increase 25 basis points. The change will add $250 to an FHA-insured homeowner’s annual loan costs per $100,000 borrowed,(~$20/month per every $100k) and applies to all borrowers equally. Current FHA borrowers are unaffected.

To understand the FHA is to understand why premiums are rising.

As an institution, the Federal Housing Administration plays a much larger role in the U.S. housing market today than it did just 5 years ago. According to its own records, the FHA’s percentage of purchase money business nationwide expanded from 4 percent in FY 2006 to 19 percent in FY 2010.

Rapid growth like this has strained the FHA’s capital and, indeed, in its official statement, the FHA alludes to this, stating that the MIP increase will “significantly strengthen” its reserves. By law, the FHA must maintain a certain minimum level of reserves.

You may be wondering~ What is MIP?

“Answer: Through its FHA Single Family Insurance Programs, HUD provides insurance for mortgages placed by private lenders and is designed to encourage lenders to make credit available in areas and to borrowers who may not otherwise qualify for conventional loans on affordable terms. FHA’s role is essentially that of an insurance company. All borrowers must pay a mortgage insurance premium (MIP) to offset the insurance risk involved.”

For more info, contact myself or your loan officer today.

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